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Code Commitee changes criticised: 'Creating, not fixing problems'

The Code Committee may be creating more problems than it is solving with its new version of the Code of Professional Conduct for AFAs, a submission has warned.

Friday, February 26th 2016, 6:00AM

by Susan Edmunds

Submissions have now closed on the exposure draft of the new version of the code.

One of the most significant proposed changes is designed to make it easier for advisers to offer limited advice.

At present, many find their compliance requirements too cumbersome to offer advice to anyone who wants less than a full financial plan.

The Code Committee has proposed replacing the "transactional advice" concept with a wider "limited advice" idea in the code, with relief from the need to assess suitability of advice when it is requested on a particular product, without a transactional element.

But SiFA said in its submission that missed the point.

It said the code needed an entirely separate standard to cover situations where clients needed something less than a full comprehensive plan.

Murray Weatherston said the Code Committee did not seem to realise that need to assess suitability could apply to comprehensive advice and to limited advice. He said the same level of diligence would apply in both situations.

“Someone can want advice on limited things but still want advice that’s suitable.  [The change] allows clients to opt out of having suitability considered but that’s not the same issue,” he said.

“Our problem with the current definition of ‘transactional advice’ and the propose definition of ‘limited advice’ is that they both appear to be prescriptive for only one of the very many guises in which ‘less than comprehensive’ advice might arise.  It is understood that the code is ‘principles-based’ and a change to the prescriptive approach for this component alone has the potential to create unintended consequences.”

He said regulation needed to find a way to allow for customers to be given something less than a full financial plan.

“We suggest they put in a complete separate code standard to cover less than full advice. It would say that the consumer can get whatever he or she wants, the adviser can do whatever the client wants. Ethical requirements would still apply, suitability would be restricted to the objective the client is trying to meet in seeking the advice.”

Weatherston said the committee needed to convene a working party of people in the field to work towards a solution.

He said he was not optimistic about the SiFA proposal being accepted but felt an attempt had to be made.  “I’m not going to die wondering what would have happened if I had tried to change inadequate policy. What we want is something that works for consumers and for advisers.”

SiFA also argued the proposed statement for an adviser offering limited advice: “if we had considered everything, we may have come to a different recommendation” was bizarre.

“Ask yourself how you as a client would respond if your lawyer, doctor, dentist, counsellor gave you such a statement. It hardly builds confidence for the client.”

Tags: Code Committee SiFA

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